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Spanish Inheritance Tax - A response to recent articles...

By Mark Roach - Fri 1st Oct 2010

I felt that I MUST respond in respect of a number of articles that have been published in various local Spanish newspapers recently...

It is stated that the shares of a UK company may be subject to Spanish IHT, this is incorrect if the company is managed, registered and controlled from the UK and is in possession of a UK certificate of residence. In this case no taxes or IHT are payable in Spain as the company is deemed to be a non resident of Spain.

It also states that the average Spanish IHT is not 40% as the tax bands are 7.65% to 34%, this is correct to a point, however, this increases depending on the value of the inheritance, kinship of the inheritor and the pre existing wealth of the inheritor in respect of any assets owned in Spain. A multiplier is applied and can increase the rate by 1.2 to 2.6 times the rate resulting in a maximum rate of 82%. An inheritor living in the UK inherits a property in Spain of 1million euros from their partner who at the time of the inheritance already owns property in Spain to the value of €600,000. In this case the ISD(IHT) in Spain alone would be €566,015, this is 56% tax and this asset would also be declared in the Deceased’s UK estate and 40% tax may be payable in the UK depending on the value of the other assets within the estate. There is no treaty between the UK and Spain in respect of IHT as in Spain it is the inheritor who is taxed and in the UK it is the deceased who is taxed therefore double taxation may apply. Some relief may be claimed from HMRC on IHT as an allowance can be claimed depending on the proportion of assets held in the UK as against the value of assets taxed elsewhere, but it is a very minor allowance and does not mitigate all the tax payable.

The above example shows the need for every case to be looked at on an individual basis and there is no blanket solution to the IHT problem. A qualified tax consultant with experience and knowledge of both Spanish and UK tax regulations should work out your potential liability on your specific case taking into account both your Spanish and UK assets and your intended inheritors, only then can the consultant advise on the best course of action, many Lawyers do not have the level of taxation knowledge required to advise on this subject in both jurisdictions.

The next point is the matter of Gifting a property into a UK Company which is what I have not mentioned in recent articles. I acknowledge that a gift to a company could currently incur a Corporation tax charge of 21%, reducing next year to 20% and not the 19% stated in the article. I believe this 19% relates to the Spanish CGT tax on private individuals and as this is a UK company, does not apply to this transaction. This misconception of 19% of the capital is incorrect. I have stated previously that it is advisable to invest the property into the UK Company in exchange for Voting redeemable preference shares. This a simple legal transfer of the property that is usually done without any CGT implications or Corporation tax, unless of course your legal advisor allowed you to undervalue the property in the public deed at the time of purchase, thereby evading some of the 7% purchase tax and assisting the seller to evade CGT that you would now be liable for. This method of investment has none of the problems stated in the article as the investment in shares does not create a gain.

Once the property is in the UK Company you can involve your inheritors as directors to assist you with the onward management of your investment and leave your assets in your UK Will without any recourse to Spain. This is not very good for the Spanish legal profession but it is the best method for the majority of UK resident clients and their beneficiaries.

One thing that you should always do before deciding on any strategy is to check the credentials of your advisors and make sure that they are qualified and experienced in these complex international tax issues. You can visit our website at by clicking on our logo / link (above) and meet the team of Wincham advisors. You will see that we have a wealth of experienced and qualified people who can guide you through these often complex matters.

Finally the article writers say that they have many other methods of dealing with the Spanish IHT problem : well, perhaps they would like to enlighten Tumbit's visitors on these methods and it would be interesting to evaluate these strategies....

If you require any specific advice to an inheritance tax issue for your family and your property in Spain, please do not hesitate to contact us today, by simply clicking the above link.

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